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Edited version of private advice
Authorisation Number: 1012646623572
Ruling
Subject: non-commercial losses
Question
Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your primary production business activity in the calculation of your taxable income for the 2009-10 to the 2016-17 financial years?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on
1 July 2009.
Relevant facts and circumstances
You satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You carry on two primary production activities. The first commenced in the 2009-10 financial year and the second in the 2013-14 financial year. The first has a longer commercially viable period than the second.
You expect to pass the assessable income test in the 2017-18 financial year.
You chose to treat the two primary production activities as one business.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 35-10(1)
Income Tax Assessment Act 1997 subsection 35-10(2)
Income Tax Assessment Act 1997 subsection 35-10(2E)
Income Tax Assessment Act 1997 paragraph 35-55(1)(b)
Reasons for decision
For the 2009-10 and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:
• you satisfy the income requirement and you pass one of the four tests,
• the exceptions apply, or
• the Commissioner exercises the discretion.
In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. The relevant discretion may be exercised for the income year in question where:
• it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests
• there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period (CVP) for your industry.
The CVP for one of your activities is three years therefore you would be expected to pass a test or make a tax profit from the activities in the 2016-17 financial year.
Paragraph 23 of Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion allows a tolerance of one year in the calculation of the CVP where a business has started late in the financial year. In your case you commenced the activity late in the 2013-14 financial year and with the tolerance of one year the assessable income test is passed in the 2017-18 financial year which is within the CVP.
It is accepted that it is in the nature of the business activity that has prevented one of the four tests being passed or a profit being made in the applicable income years.
Consequently the Commissioner will exercise the discretion in the 2009-10 and the 2016-17 financial years.